Investigating institutional and expenditure patterns on debt and economic growth in Ghana

Abstract

AbstractThis study investigates the influence of government expenditure and institutions on public debt accumulation and economic growth in Ghana between 1990 and 2019. The paper examines how public debt is utilized for government spending on capital and recurrent expenditure, and the role bureaucratic quality plays in improving economic growth. The employed estimation technique is structural equation modelling because it effectively assesses complex situations and allows the modelling of complex systems by utilizing simultaneous equations, mediator analysis and modification indices to improve the goodness of fit of a model. The study indicates that public debt negatively affects GDP growth, whereas trade openness positively influences GDP growth and public debt accumulation. Bureaucratic quality impacts GDP growth positively and capital expenditure negatively. Recurrent expenditure positively predicts GDP growth and capital expenditure. Capital expenditure's effect on GDP growth is negative but statistically insignificant. The right checks and balances should be implemented to mitigate rent‐seeking and corrupt activities associated with bureaucracy. Tax revenue mobilization should be improved to reduce budget deficits and borrowing, whereas exports should be promoted through improving local industries. Finally, all infrastructural projects must be completed to serve their purpose.